Court Finds Megaupload Could Be Guilty Of Direct Infringement In Perfect 10 Case

from the say-what-now? dept

Perfect 10 is probably a lot more famous for filing copyright infringement lawsuits than publishing any sort of images. And it seems to always lose. In the process, the company has helped set a variety of useful precedents, mainly in the area of fair use. Yet the company forges on, suing every third party it can find. Last year, we detailed RapidShare's fascinating response to Perfect 10, which finally lays out in great detail some of the company's practices -- such as allegations that it sends faulty or otherwise questionable takedown notices in the hopes that they're not taken down so the company can sue.

Earlier this year, we noted that its latest target was the well known file storage service, MegaUpload. Given the similarity with this case to many other Perfect 10 cases, we had hoped that the judge would make quick work of dismissing it. Tragically, that's not what happened. Embedded below is the unfortunate ruling from Judge Irma Gonzalez, who mostly ruled against MegaUpload in its motion to dismiss the lawsuit. You can read the whole thing, but the truly scary part for me is where the court says MegaUpload may be guilty of direct infringement.

This is crazy. Direct infringement charges are used against the actual party doing the infringing. Most service providers don't have to deal with that, but instead the focus is on third party liability, things like contributory infringement, vicarious infringement or inducement. Here, however, the judge actually says that MegaUpload is involved enough that it could be found guilty of direct infringement:

Drawing all reasonable inferences in Perfect 10's favor, Megaupload serves as more than a passive conduit, and more than a mere "file storage" company: it has created distinct websites, presumably in an effort to streamline users' access to different types of media (e.g., megaporn.com, megavideo.com)... it encourages and, in some cases pays, its users to upload vast amounts of popular media through its Rewards Programs.... it disseminates URLs for various files throughout the internet... it provides payouts to affiliate websites who maintain a catalogue of all available files... and last, at a minimum, it is plausibly aware of the ongoing rampant infringement taking place on its websites. Taken together, Perfect 10 has adequately alleged Megaupload has engaged in volitional conduct sufficient to hold it liable for direct infringement....

This still doesn't make any sense. Everything described seems relevant to indirect third party liability. None of it seems to involve direct infringement. Honestly, I'm just confused how the court made the leap here. While this was just to deny the motion to dismiss, this might not bode well for Megaupload... and Perfect 10 may finally score a big legal win.

MegaUpload....

Now see, MegaUpload might be actually guilty of Direct Infringement because of this little thing it does (that no one else does afaik): They let users upload files to MegaUpload, and then they sift through them and offer them on their pay sites MegaVideo etc. So in a sense, if you ignore the first step of the process, then they house the infriging content AND distribute through 2 separate wings of their business. I dont necessarily agree with the ruling, but I can certainly understand it.

Re: MegaUpload....

Agree. If they are advertising for people to upload stuff, paying them to do it and then grouping it based on the type of content, they are contributing far more to the process than a "dumb" provider that receives uploads from the public and responds to takedown notices.

I can certainly see why a judge wouldn't dismiss and actually want to hear the trial.

Re: Irma Gonzalez

Megaupload IS "more than a passive conduit".

I can't imagine reaching any other conclusion. They knowingly host content which at a glance is copyrighted, and charge money for access. I believe that they operate out of Germany, and the loose rules there are the only factor that has protected them thus far. -- As I've mentioned, soon as these cases get to court where an absolute yes/no is forced, the copyright side will undoubtedly "win".

Actually, the judge is getting it right, for all of the right reasons.

Megaupload doesn't just allow you to upload a file and point others to it (as a straight file host might) but they are also providing a streamlined user interface, and are aggregating the content (similar in manner to YouTube). There is a point where this type of service has to be aware of the content they are putting up, and realize that it is in violation.

At the point of aggregation, they could become a first party infringer.

This was a summary judgment motion

I have not looked into the details of the case, but based on the short snippet you provide, it looks like this was rejection of a request for summary judgment. When considering a request for summary judgment, the judge must make every possible inference in favor of the non-moving party.

So, remember this is not saying MegaUpload is even likely to be liable for direct infringement. It is merely saying that when every possible inference is made against MegaUpload that what the other side has alleged is enough that it might possibly constitute direct infringement.

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"At the point of aggregation, they could become a first party infringer."

No, you become a direct infringer at the point of reproduction, preparation of derivative works, distribution of copies or phonorecords, publicly performing the work, displaying the work publicly, or performing the work through digital audio transmission.

Maybe some of these things were alleged in the complaint and the opinion just focuses on "volitional conduct" because that was the only argument megaupload raised, but "volitional conduct" alone is not enough if it doesn't fit one of those enumerated rights.

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So you think that illegal file sharing is the same as the Holocaust? When did the government start tattooing freetards? Putting them in concentration camps? Putting them in ovens and performing grotesque scientific experiments on them?

Yeah, you're failing miserably. I'm sure that anyone that went through the Holocaust would love to hear how you're being persecuted in the same way. You're not doing anything for your cause by equating it with what was one of the most horrible acts in human history. This is why no one takes you seriously.

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We dont know how much, if any, reproducing of works without checking for licensing happens inside megaupload's network. I think thats why the lawsuit was allowed to go through. Their service is pretty slick and they are clearly distributing copywritten content without any prior aproval. If they are sorting and making things better for distribution without a copyright, and then selling access its a pretty clear violation of US law. If they were simply a warehouse of uploaded content (like megaupload on its own) then it would be fine, or if it were other 3rd party providers that were making content easy to find then again that would be fine under case law, but this is a new breed of animal.

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The US legal system agrees with me.

So far, this is the only case that has ruled that such things constitute direct infringement. For example, the Supreme Court did not rule that Napster, Grokster, etc. were directly infringing, even though they considered that option.

If this case doesn't simply get settled, then either the judge will rule for contributory, vicarious, or inducing infringement, or it will be overturned on appeal. There's simply too much case law that contradicts a ruling of direct infringement.

Of course, any of those things mean you can be fined the statutory rates, so it's not much better for Megaupload.

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"We don't know if Defendant has infringed" is not a grounds for denying a motion to dismiss. The court said, taking the facts alleged by the plaintiff and all reasonable inferences therefrom as true, defendant has engaged in direct copyright infringement.

But the actions discussed specifically in the opinion do not, I believe, amount to direct infringement. Perhaps there is an inference that Megaupload is making reproductions (I do think that's probably reasonable), but the opinion is not clear on that point.

Your post glosses over the distinctions between direct, contributory, and vicarious infringement, which is the main thrust of the article.

Also, "copywritten" is not a word. At least, not a word related to copyright.

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"If this case doesn't simply get settled, then either the judge will rule for contributory, vicarious, or inducing infringement, or it will be overturned on appeal. There's simply too much case law that contradicts a ruling of direct infringement."

Without looking at the complaint, I'm not sure if that's true.

It sounds like "volitional conduct" was the only matter argued, not whether MegaUpload was engaging in acts that would constitute direct infringement if "volitional."

At the very least, you could uphold this ruling on the grounds that it is a reasonable inference that, from the facts alleged, MegaUpload engaged in conduct constituting direct infringement (e.g. made at least one copy of a work in the course of its operations).

Re: Re: Re: Re: Irma Gonzalez

Because it lumps a large and diverse group of people under a uniform heading of 'women' and applies individual positive and negative traits of some of the group members to the entire group.

Two points. First, it is only considered "sexist" if it disparages someone based on their gender. The OP didn't do that. Second, the OP didn't refer to all "women" as a group, only the ones who are judges and making rulings such as this one.

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Copyrighted is my grammatical Achilles heel... and I don't think I'm glossing over anything, I just think the judge wants a chance to listen to experts discuss those minute differences instead of just making an opinion from motions.

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but this is a new breed of animal.

Not that new. It was considered back when section 230 of the DMCA was written. Of course, people who don't like section 230 have been trying to get rid of it ever since then with case after case that they try to claim is somehow new and different.

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Helpful hints: copyright is not a verb. copyright is not copywrite.

Anyway, nothing in any of your posts discusses the difference between encouraging others to infringe and profiting from infringement, on the one hand, and actually performing acts of infringement, on the other.

Since that difference is the main thrust of Mike's article, I'd say you are glossing over the differences.

Also, there's no reason for the court to issue an opinion denying the MTD on direct infringement just to hear expert testimony. The difference between direct infringement and contributory/vicarious is not really a "minute difference" and you'll only get to expert testimony on the issue if the plaintiff at least *alleges* that some act of direct infringement ocurred.

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Napster settled, but probably would have been guilty of direct commercial infringement if the RIAA had really gone balls out on it. Unfortunately. It was also the most amazing thing that ever happened and had even one record label seen the massive opportunity it presented one of them would have built iTunes and I wouldn't be forced to learn MacOS at work.

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Re: Re: Re: Re: Re: Re: Irma Gonzalez

Says who?

I think most people recognize that as the general usage of the term. But I suppose that by *your* rules, any mention of gender is an excuse to play the sexist card. But then, by your rules, guess what that makes you: Sexist! You fail miserably both ways.

Re: Re: Re: Re: Re: Re: Re: Irma Gonzalez

As long as "most people" doesn't include Wikipedia or Merriam-Webster, you're right!

"Sexism, also known as gender discrimination or sex discrimination, is the application of the belief or attitude that there are characteristics implicit to one's gender that indirectly affect one's abilities in unrelated areas." http://en.wikipedia.org/wiki/Sexism

"1: prejudice or discrimination based on sex; especially : discrimination against women

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I agree with everything you just said, but I dont think you really understand what megaupload does. It allows users to upload content for storage (legal) and then also provides a service that allows users to browse that content and view it (also legal). But the difference would be if they transfer content to separate MegaVideo and MegaPorn servers to then sell that content out. Thats the step that would concern a judge I believe, because it would be like selling a netflix competitor that just streams content off the PirateBay.

Re: Megaupload IS "more than a passive conduit".

Yes, but you're posting here in la-la land where people think that they can spout the word "innovation" and it makes it all okay.

In almost every other corner of the law, helping the criminals find each other is called being an accomplice. If you run a directory of hitmen and help people find the right one to match their needs, it's not "free speech". Nope. It's called being an accomplice.

If you create a directory of cars and help people find the one they want to steal, that's called being an accomplice. It's not free speech. It's not "innovation". It's a crime.

Yet, people here continue to denigrate the hard work of people like Martin Luther King and Peter Zenger just to try to dodge their inevitable guilt.

Sigh. At moments like this, I almost feel like the $150,000 penalty is actually fair.

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Re: Re: Megaupload IS "more than a passive conduit".

Oh come on. In 99% of the cases, the infringer is uploading something like a major motion picture or an album from a major band. It's not like these 99% of the people have a plausible reason to believe that the zippy computer generated graphics were actually done back in the 1910s and are therefore in the public domain.

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It sounds like "volitional conduct" was the only matter argued, not whether MegaUpload was engaging in acts that would constitute direct infringement if "volitional."

The phrase "direct infringement" was used by the judge herself to refer to acts committed by third parties using Megaupload. She ruled that if Megaupload's conduct is "volitional," it can be directly infringing.

What's interesting is that she quotes Arista v. Usenet and Capitol v. MP3Tunes. The Arista case ruled (from Playboy v. Hardenburgh) that the service provider must have some sort of active screening process in order to "transform Defendants from passive providers of a space in which infringing activities happened to occur to active participants in the process of copyright infringement." A screening process was not even alleged in this case.

Capitol v. MP3Tunes is still ongoing, to my knowledge; the latest court document I could find was the ruling on jurisdiction and venue from August 2009. Neither that ruling, nor any other I've come across, suggest that MP3Tunes could possibly be guilty of direct infringement. (Likely she has access to a document that I don't.)

What's also interesting is that she dismisses the "vicarious liability" claim, ruling (from Napster) that a service provider must operate in a "closed system" for vicarious liability to attach.

This will definitely be an interesting one to watch, for the legal wonks.

Re: Re: Re: Re: Re:

Rulings on motions to dismiss certainly are considered "case law."

It might be relevant in another motion to dismiss. But if another case cited this one as proof that volitional conduct alone is sufficient to show a ruling of direct infringement, I seriously doubt any judge would go for it.

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Actually, at the point that they allow people to browse the content, they are going past just being a passive host and into being an aggregation and republishing system. They present the content outside of it's original context, incorporating it into their webpage and web sites.

Re:

Why are you surprised? This site is all about astroturfing for Big Search, Big Hardware and Big Piracy. Piracy is a big business and this site is just a new example of how piracy isn't just a few friends making mixtape. It's all about the cash.

The folks here will jump through any hoops to believe that what these sites are doing is "innovation" when, as far as I can tell, the only innovation is cutting the creator out of the loop.

Re: Re: Re: Re:

Oh, and this:

e.g. made at least one copy of a work in the course of its operations

...was not even alleged, to my knowledge. That is, nobody at Megaupload was even alleged to have directly placed any material on their own servers. She seems to have ruled that "volition" alone is sufficient for direct infringement.

Re: Re: Re: Re: Re: Irma Gonzalez

The problem (WAY off topic) is that there are too many schools of thought, and very few people to get behind. One school of thought is:

We fought for equal rights, and if you don't do this then you are setting women back thousands of years!!!1!

The opposite school of thought (I've seen many grandmothers with this, and a few of the younger generation in the south):

Women should be in the home or doing a small number of jobs designated 'for women' (nurse, teacher, secretary). If you're doing anything else then you are upsetting the natural order of things!!!1!11!!!

The moderate school of thought has no-one leading the charge, but is incredibly sensible:

Someone fought for me to have equal rights. I should be able to work in any job that I'm qualified for if I choose without being berated by women who are bigots. If I choose not to work, I shouldn't be berated by the other group of women bigots.

Re: Re:

This site is all about astroturfing for Big Search, Big Hardware and Big Piracy.

Oh goody, another one of the tin-foil-hat brigade.

Sorry, none of the people on this site are "astroturfing," which doesn't mean what you think it means. And from what I understand, Mike makes most of his money by helping artists make more money, not from "Big Search, Big Hardware, and Big Piracy" (as if those three are not related in any way at all).

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Get a clue. Look at Mike's sponsors. Who do you think pays for his conferences? Who generates his ad revenues?

And they are all related in that they don't want content creators to make much money because there's only so much money in the pot. Splitting some with the creators who do the work would only make it harder for the Big Search stock option princes and princesses to afford their hot tubs.

sometimes things add up in funny ways.

The law allows people to shoot guns. (legal!) The law allows people to point guns at people. (Also legal). But it doesn't allow people to do both.

At some point, even the nuttiest person must admit that the only reason people pay sites like this is to get the copyrighted content. No one uses a public site for backup. No one uses a public site like Megaupload to run a blog. They're engineered for one purpose only.

Re: Re: Re: Re: Re: Re: Re: Re:

Actually, at the point that they allow people to browse the content, they are going past just being a passive host and into being an aggregation and republishing system.

That's not true. They have to selectively allow people to browse the content; that is, they have to have the role of approving and disapproving the content. In the words of Playboy v. Hardenburgh, they must have "used a screening policy that allowed employees to view files before they were uploaded."

From what I understand, Megaupload does allow people who upload (say) .avi files, to allow that content to be transcoded and streamed; but that decision is done by the user, not Megaupload.

Also, r.e. "copywritten": there is such a thing as a "copywriter," i.e. "one who writes copy," as in a news article. No relation to copyright. That's probably the source of confusion.

Re: Re: Re: Re: Re: Re:

Re: Re: Re: Re:

Get a clue. Look at Mike's sponsors. Who do you think pays for his conferences? Who generates his ad revenues?

Take a peek at the Insight Community Case Studies. The big clients are UPS, American Express, Dell, Sun/Oracle, and LetsTalk.com, plus music startups like CybearSonic. Not exactly "Big Piracy," now, are they?

And ad revenues don't even pay for hosting costs. I know this from experience as a webmaster, and Mike has confirmed it numerous times.

And they are all related in that they don't want content creators to make much money because there's only so much money in the pot.

Sounds more like major labels to me. Which would make sense, actually, since Sony is both a major label, and "Big Hardware."

Seriously, though: you have no idea what you're talking about. You just make stupid little accusations and transparent little smear attempts.

The fact is that you think that anyone who doesn't agree with you is "astroturfing" for big, bad, nebulous organizations who are out to get you. That is classic loony-bin conspiracy theory nonsense.

Re: sometimes things add up in funny ways.

Those sites are used to move perfectly legit binaries around all the time, for example, the android development world. But thats beside the point, because that part of it is legal. Its the fact that they sort out content and then sell that content without paying the copyright holder. And I think they pay the uploader for the right to do that without checking if the uploader is the copyright holder.

adult content often makes bad law

As an intellectual property copyright freedom litigator, I have represented and been counsel to adult publishers. In general, one has to realize that this is the United States and that any case with adult content involved has the potential to make bad law. It is almost pointless to debate the legal reasoning here. Mike Masnick is brillian, I follow him closely, quote him often, and I know he is not naive about judges working backwards from a conclusion.

Re: Re: Re: Re: Re:

"The phrase "direct infringement" was used by the judge herself to refer to acts committed by third parties using Megaupload. "

Where?

"She ruled that if Megaupload's conduct is "volitional," it can be directly infringing."

That's not the same thing. "Volition" is necessary but not sufficient for direct infringement. You also have to actuall do something prohibited by 106. Here opinion sort of made it sound like there wasn't any debate whether the plaintiff alleged copying, etc., but only whether any such acts were volitional.

Re: Re: Re: Re: Re:

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No one is going to tattoo anyone or put someone in an oven for infringement. Anyone who thinks otherwise has serious delusions. If people learn to keep to the issues they won't make the whole of the 'freetard' (not my word) movement look like a joke.

Remember, people tend to look at the loudest and most retarded arguments from the other side. Look at Christians for a good example. I am one, but I don't like being lumped in with the people who are starting wars, trying to get video games banned, claiming that the earth is flat, or that every kind of animal that ever existed exists now. That's how you turn people off to a movement.

Re: Re: Megaupload IS "more than a passive conduit".

"If you create a directory of cars and help people find the one they want to steal, that's called being an accomplice. It's not free speech. It's not "innovation". It's a crime. "

Perhaps it's a crime, but it's not the crime of "car theft". If you cover up evidence of a murder, you are perhaps guilty of obstruction of justice, but not of murder - even though you may have helped the murderer.

Similarily, helping someone to infringe is not DIRECT infringement. By definition, it's INdirect, and has different law that applies to it.

Re: Re: Re:

And from what I understand, Mike makes most of his money by helping artists make more money

Oh really? Tell me more. As far as I can tell, his surveys about the wonderful future for artists usually come down to repeating the name Radiohead and talking about some guy who sold elaborate music boxes. They're all quite nice little niches, but I've never seen any story about how Mike is actually writing checks to artists or even helping someone else write the check. Usually he just seems to be saying that it's all going to be really cool as long as we keep giving away our content so Big Search can sell ads next to it.

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I like to picture a bunch of you copytards sitting around the lunchroom at Dying Publisher Inc. and laughing at these stories. You smile at each other as you post these "scathing" comments, and occasionally high five.

Yet you fail to notice the day when your nice lunchroom table and chairs are replaced with white plastic lawn furniture. Or when Sally and Joe from accounting (the biggest department) just stop showing up to join in the laughs, mostly because they are no longer employed at the office.

Re: Re: Re: Re:

Oh really? Tell me more. As far as I can tell, his surveys about the wonderful future for artists usually come down to repeating the name Radiohead and talking about some guy who sold elaborate music boxes

Re: Re: Re: Re: Re: Re: Re: Irma Gonzalez

Wait a minute, I think I agree with him. For example, there's a Women's Health Center just down the road from me. That's clearly a sexist name for the place. Then there's the BET network, or Black Entertainment Television. Another obviously racist organization. And don't even get me started on the Jewish Defense League.

Re: Re: Re: Re: Re: Re: Re:

Wow. Just wow. You're really going to sit there and tell me that you're enduring the same hardships as the Jewish people in Nazi Germany because it's a civil offence to download the latest episode of the Gossip Girls?

Masnick, you may wanna tell these folks to switch sides. While you have well reasoned arguments, you don't need people like this making all of you look like jackasses.

Re: Re: Re: Re: Re: Re: Re: Re: Re:

"volition" alone, even without conduct, is sufficient to prove direct infringement.

Let me clarify: she appears to be saying that "volition" is sufficient to prove direct infringement, even if Megaupload did not directly initiate any violation any of the rights in 17 USC 106.

That is not the standard that was established in Napster, Grokster, Limewire, etc. - all of which were found guilty of indirect infringement (inducement, contributory, or vicarious), but not guilty of direct infringement.

So, she appears to be ignoring case law and creating her own standard for direct infringement.

Whether that is true going forward remains to be seen, of course. This is still an incredibly preliminary stage of the proceedings. Even if there is an eventual verdict of direct infringement, it's likely that will be overturned on appeal.

Re: Re: Re: Re: Re:

So when I paid money and received the 'goods' in exchange, what 'license' did I purchase?

I seem to recall that the merchant treated the sale as just that, a sale, I wasn't 'licensed' the ability to listen to music, I was SOLD the music to listen to or use however I wanted to... I don't recall being presented with a list of 'licensed rights' with any of my music purchases over the years, so when did I agree that I was only 'licensing' the music I purchased?

Show me the license that was presented to me and that I agreed to before purchasing music on purchases of: Phonograph, 45 (smaller phonograph for those newbies), 8-Track, Cassette or CD (technically CD's may have a 'license' included, but it's not one that I saw or agreed to before I purchased it, so I'm not legally bound to comply with it from my perspective.....

Re: Re: Re: Megaupload IS "more than a passive conduit".

The point, in case you missed it, is that Viacom sued Google over Youtube videos uploaded by Viacom. If Perfect 10 wants to go after the uploaders, that's fine (though not productive). But how is Megaupload supposed to know which materials are authorized and which are not?

Re: Re: This was a summary judgment motion

That is possible though the small snippet reads more like summary judgement ruling than a 12(b)(6) which is really only concerned about whether the plaintiff made a prima facie allegation of a claim for which relief can be granted where it would not matter what inferences were made or what was even possible.

Does anyone have the entire judgment or at least the full case citation to make looking it up easier?

Re: Re: Re: Re: Re: Re: Re: Re:

Wow. Just wow. You're really going to sit there and tell me that you're enduring the same hardships as the Jewish people in Nazi Germany because it's a civil offence to download the latest episode of the Gossip Girls?

Wow. Just wow. You're really going to sit there and claim that he said that and also deny that there are criminal copyright infringement laws? Talk about jackasses. You people make me sick, too.

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The people that can throw you in jail or fine you hundreds of thousands of dollars,

They might get away with doing that to a few people.

In the days of Henry VIII doing that to a few ringleaders generally worked. By the time of Charles I it didn't work. BY the late 18th century (American and French Revolutions) it really didn't work. As technology and education have progressed so this has worked less and less. Those who would control the masses have had to resort to subtler means. The suggestion you make of going back to such crude measures can only be a sign of desperation.

Statistically the chance of being put in jail for doing something technical on the internet is insignificant.

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Remember, people tend to look at the loudest and most retarded arguments from the other side.

Actually the argument is not that retarded. No-one is really claiming thatthe situation re copyright infringement is as bad as the holocaust, merely that it shares certain characteristics. What we are looking at in both cases is one side trying to get its own way by gerrymandering the law. The prediction is that this will not work in the long term and that those who work that way will end up looking bad.

this is nothing

Let's see as far as I know megaupload is a hong kong based corporation, the owner is not a US citizen nor lives in the US, so US laws are not applicable in this case, now I do not know where the server are physically located so if this goes further I guess that in the remote case of the server being located in US soil these could be seized but other than that i guess that this dude keeps hasnt lost any of his sleep due to this case...The US court has no jurisdiction at all